TOWA FOOD SERVICE CO.,LTD

Outbreaks of diseases such as avian influenza, unfavorable weather, and natural disasters may cause procurement instability or price spikes for ingredients, potentially forcing changes to some menu items. In addition, if foreign object contamination or quality labeling defects occur, resulting in recall costs, litigation, damages, or system construction costs to strengthen traceability, this could affect business results and financial condition. The Company addresses this by procuring from highly reliable suppliers, conducting inspections at customs clearance, and performing regular self-inspections.

The Company manufactures raw spaghetti noodles, pasta sauces, dressings, fresh cakes, and other items at its central kitchen and delivers them chilled to stores, so if food poisoning were to occur, business suspension orders and other measures could have a material impact on business results and financial condition. The Company implements strict quality control and hygiene inspections at its central kitchen and stores, and has obtained ISO 22000 certification, a food safety management system standard, working to thoroughly implement and improve quality control.

If natural disasters such as typhoons, storms, earthquakes, heavy rain, or floods cause damage to production sites or facilities, production and shipping may be suspended for an extended period until recovery, which could adversely affect business performance. The Company has taken measures such as formulating a disaster response manual and BCP (business continuity plan), establishing a safety confirmation system, and conducting disaster drills, but states that damage cannot be completely eliminated. Given the recent trend of increasing extreme weather events, continuous risk management is required.

As environmental and social issues such as climate change become more prominent, tightening of environment-related regulations, evaluations by stakeholders, and heightened consumer awareness may affect business results and financial condition. The Company works to reduce waste and CO₂ emissions by providing raw noodle scraps generated at its factories as feed, but if these efforts are deemed insufficient, this could become a business risk. As expectations for SDG initiatives continue to rise, ongoing strengthening of measures is required.

Most of the Company's stores are leased properties, and in particular, fixed-term lease contracts may not be renewed after the contract expires. If a lease is not renewed, it may become difficult to continue operating the store in question, which could affect business results and financial condition. As leasing is the Company's basic strategy for opening stores, the risk of contract non-renewal represents a structural challenge to business continuity.

Since the Company's basic strategy is to open stores through leasing, if a lessor becomes insolvent or otherwise falls into financial difficulty, it may become difficult to continue using the store or to recover receivables such as lease deposits. If such a situation occurs, there is a risk that it could affect business results and financial condition. This is a structural risk arising from the Company's lease-dependent store opening strategy, and ongoing monitoring of lessors' creditworthiness is important.

If store profitability deteriorates due to future changes in the business environment, impairment losses may need to be recognized under fixed asset impairment accounting, which could affect business results and financial condition. If intensifying competition in the food service industry or changes in consumer spending trends put pressure on store profitability, the risk of simultaneous impairment at multiple stores cannot be ruled out. As the Company operates a large number of stores, impairment risk represents an important potential financial issue.

A worldwide spread of infectious disease and resulting voluntary restraint from going out may reduce the number of customer visits, affecting business results and financial condition. In the event of a spread of an infectious disease similar to COVID-19, the Company establishes a response headquarters headed by the Representative Director and President, and continues to implement infection control measures, operational reopening guidelines, telework, and use of online meeting systems across all business locations. The Company implements thorough hygiene management in accordance with national and local government guidelines, but it is difficult to completely avoid the direct impact on demand for dining out.